The MPC has held the repo rate steady - now what?

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Four members preferred an unchanged stance, and two preferred a reduction of 25 basis points.

The interest rate has now remained unchanged for well over a year, and is higher than what it was following the 2007/8 Global Financial Crisis.

Lesetja Kganyago, the South African Reserve Bank's governor said - in discussing the stance - that MPC members agreed that restrictive policy remains appropriate to stabilise inflation at 4.5%.

"The committee assessed that an unchanged stance remained appropriate, given the inflation risks. Some members, however, were of the view that the inflation outlook had improved enough to reduce the degree of restrictiveness.

"[However], we remain concerned about administered prices. We have had to mark up electricity inflation for this forecast round, even as other categories shifted lower. Services price inflation also remains uncomfortably above the mid-point," Kganyago said.

Market-value erosion

The property market in particular has lost its momentum.

Samuel Seeff, chairman of the Seeff Property Group noted the MPC's decision has resulted in significant value erosion in the property market, which is down by about 25%, while price growth has stalled to below 1%.

"It’s been a tough year for homeowners with the prime lending rate holding steady at 15-year highs," says Bradd Bendall, head of sales at BetterBond. "So the news today that the prime lending rate will remain at 11.75% will knock the wind out of the sails of consumers who were hopeful after US consumer prices fell unexpectedly, marking the smallest annual increase in a year.

"Amid the positive outcome of the recent elections and the rand's strong performance against the dollar, it was hoped that the Reserve Bank would relax its restrictive monetary policy and offer consumers some much-needed financial relief."

Tone-deaf decision

Comments Seeff: "The Sarb's decision is out of step with the economic needs of the country, and perhaps a little tone deaf in terms of the plight of consumers and homeowners, especially since it was a split decision by the MPC members.

"In some instances middle-class homeowners have been paying up to R1,500 to R3,000 per month more on their home loans on top of other above-average credit- and living-cost hikes. The burden on consumers and the economy is too high.

"The higher inflation is not due to overexuberance in the economy or overspending by consumers. The only real effect of the higher interest rate has been that it has stalled the economy, and pushed costs up for consumers, essentially punishing consumers."

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Craig Coetzee, managing director of property-management company, WatchProp, concurs. "The continued high interest rate places significant financial pressure on current homeowners with variable-rate home loans. Increased monthly repayments can strain household budgets, leading to a rise in distressed property sales. This scenario can create downward pressure on property prices, affecting the overall market stability.

"For potential homebuyers, and especially first-time buyers, the high interest rate is a substantial barrier to entry. Affordability is a critical issue. Higher borrowing costs reduce the amount of capital that buyers can secure. This dampens demand, slowing market growth and limiting the pool of qualified buyers."

Businesses feeling the pinch

"From a commercial property perspective, businesses are feeling the pinch. Higher interest rates increase the cost of capital, which deters investment in new commercial properties or expansion of existing ones. This slows the development of commercial properties, affecting sectors such as retail and industrial properties and offices."

But despite the market overall being subdued owing to high interest rates and affordability concerns, the property market is still active. This, says regional director and chief executive officer of Re/Max of Southern Africa, Adrian Goslett,

"In fact, looking at how the Re/Max SA network has performed, as at end June, we are 0.75% up on number of units sold compared to last year. We are also 4% up on registered sales totals and 10% up on reported sales totals compared to last year. Although this is not true for all in the industry, Re/Max SA continues to show growth despite the challenging market conditions,” says Goslett.

Despite the challenges, Seeff advises that in view of the outlook of rate cuts ahead, buyers should take advantage of the flat prices while they can.

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"The slower market means buyers are facing less competition right now, and could secure a good price. Despite a mild tightening, mortgage lending conditions also still remain favourable for the market, and for buyers.

"Investing now means buyers can benefit from the savings once the rate comes down. Additionally, once the market rebounds, and more buyers start competing, it will likely result in higher property prices and value appreciation for those who have bought now."

He reassures the property market that better times are just around the corner.

Anticipated rate cuts

"A growing economy and property market is vital. There is a lot of positivity about the GNU (Government of National Unity). If we look back at how well the economy started growing when the interest rate was about 2% lower, it gives hope that we can get back to that," Seeff says.

Goslett also remains positively optimistic about what the coming months will bring: “With the markets responding so positively to the GNU, I am hopeful that we will soon see the first interest-rate cut and the start of better market conditions overall.

Economists predict an interest-rate cut might occur in September or November this year.

"We will have to wait a little while longer for the new government’s economic growth efforts to be realised, and for the inflation rate to peak, before interest rates start to drop," says Seeff. "In the meantime, homeowners are urged to maintain their bond repayments and to budget prudently."

The next MPC meeting will be 19 September 2024.